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What is ULIP?

Unit linked Insurance Plan, better known as ULIP is a type of life insurance plan that provides benefits of protection against risks and flexibility to manage your investments. Part of the premium paid by you goes towards providing the insurance cover and the balance is invested in types of instruments desired by the policy holder. These plans are most suitable for getting insurance and also growing your money.
ULIPs work best when invested for a longer period of time with multiple investment options. The funds can be chosen by the customers depending on their risk appetite. The right balance of investment in equity and debt funds over a longer period of time can protect the customer from the ups and downs of the market.
ULIPs are very flexible - The policy holder has the option to partially withdraw money from his funds if required. The policy holder also gets the option to contribute extra money over and above his premiums to his investment corpus by way of Top-Ups.

What are the different types of charges in a ULIP?

The premiums paid by you are invested in the funds provided in the plans. However, there are a host of charges which are deducted from your investment.

Mortality Charges

This is deducted from premium to provide you with the life insurance cover. This depends on the amount of cover, your age and your health to name a few parameters.

Premium Allocation Charges

This gets deducted from the premiums you pay before investment. This is deducted as a % of the premium paid. Premium Allocation charge is usually deducted to account for the expenses like commissions and cost of renewals.

Fund Management Fees

This is deducted as a % of the Fund Value and is usually done once a year. This covers the cost associated with managing your fund. They are deducted by reducing the number of units you hold.

Policy Administration Charges

Another charge with a different name. These are to be associated with the costs involved in managing your policy. They are deducted by reducing the number of units you hold.

Fund Switching Charge

You have the flexibility to change the type of funds you are invested in. For example, you may want to move your funds from an equity oriented to debt funds. This is a small charge which gets deducted for making these changes. Most plans offer a reasonable number of free switches every year.

Partial Withdrawal Charge

In case you wish to partially withdraw some money for some urgent requirement, you are allowed to do so. There is a cost associated with it and is deduced from your fund value.

Surrender Charges

This is a charge which is deducted only when you want to prematurely cancel the plan and encash the fund value.

Currently there are a few plans which have done away with most of these charges and have maintained only the essential charges associated with the actual costs incurred. There are plans now which deduct only a nominal value for the fund management and nothing else - the mortality charge is compulsory though.

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